Efforts to legalize marijuana for medical or even recreational use recently have been implemented by a number of states.  Further, liberalization of pot laws are currently being considered by a number of others that include Florida.  While it is not clear yet whether Florida lawmakers will take this step, the decision to permit medical marijuana could raise new issues for property owners.  When the use or occupancy of a residence is modified in a way that would impact the risk assumed by an insurer, this change often must be reported to the policyholder’s insurance carrier.

A case out of a federal court in Michigan entitled Nationwide Mutual Fire Insurance Company v. McDermott demonstrates the consequences of changing the use or occupancy of a home without notifying the insured’s carrier.  The policyholder, Kasey McDermott, lost her home and most of her personal property in a fire.  The fire occurred when Kasey’s then husband’s grow house constructed in the basement burst into flames.  The carrier initially paid the insured over $160,000 but subsequently filed a lawsuit challenging liability because no notice had been provided of the change in use of the basement to the operation of a grow house.

The trial court held in favor of the insurer finding that the carrier was not notified of the change in use of the premises.  The policy specifically contained an endorsement that imposed a duty on the insured to inform the carrier promptly of any change which would impact the risk under the agreed premium related to modifications in occupancy or use of the subject property.  The court also noted the policy included language excluding claims resulting from intentional acts or “occurring while [the] hazard [was] increased by a means within the control and knowledge of an insured.”  A deposition of the insured revealed that she was aware of the grow house operation. 

Although the insured conceded she was aware of marijuana cultivation in the basement, she denied awareness of aspects of the operation related to the increased fire risk.  Much of this fire hazard was related to a method of processing “honey oil”, a THC-rich substance through a process called “butane extraction.”  Kasey’s husband was aware that butane was highly flammable and that the chemical had to be kept away from open flames.  Despite this knowledge, the husband inadvertently started a fire when he elected to smoke while engaged in the extraction process.

The insured argued that the intent of the policy was not to impose a duty to report “every” change because this would create an unworkable and oppressive obligation.  According to Kasey, the insurer’s reading of the provision would require notification that houseplants had been brought into the home or that a neighbor who smokes had come for a visit.

The court rejected this analysis, however, noting that certain types of risk are reasonably contemplated by an insurance company.  Entertaining company and furnishing a home in houseplants falls squarely within the types of risk that an insurance company should anticipate in terms of occupancy and use of a family residence.  By contrast, the court reasoned that the carrier typically would not be expected to anticipate that part of the residence would be turned into a facility for cultivating and processing medical marijuana.  This reasoning was bolstered by evidence from law enforcement regarding the extent of the modifications.  The grow rooms were outfitted with $20,000 in equipment that included a stockpile of butane containers and tons of special grow lights.  A deputy for the sheriff’s department also testified that he had never seen such an elaborate and sophisticated marijuana processing facility.

Although this case was not decided under Florida law, policyholders need to be aware of policy language that requires reporting changes in occupancy or use of their premises.  Although this grow house case involved less common circumstances, insurance companies have made similar arguments when properties are damaged by a new tenant or roommate when no disclosure is provided regarding the change in occupancy.  Most homeowners’ policies contain notice provisions that require disclosure of modifications in use or tenancy of a property especially changes that might be relevant to the evaluation of risk and appropriate premium levels.

You can reach Miami Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email Attorney Gonzalez-Sirgo directly at [email protected].

J.P. Gonzalez-Sirgo
J.P. Gonzalez-Sirgo, P.A.
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